Canada auto union up against costs it cannot control

The top priority for the union, named Unifor, is to persuade Fiat Chrysler Automobiles, Ford Motor and General Motors to pledge to produce new vehicle models in Canada. It will also seek a modest pay raise and shorter pay progression for new hires.Reuters | September 06, 2016, 11:26 IST

TORONTO: Canada's autoworkers' union, which steps up pressure in contract talks by naming a strike target on Tuesday, may see its ability to win concessions undermined by outside factors, ranging from high power rates to manufacturers' increased reliance on more costly imported parts, industry experts say.

The top priority for the union, named Unifor, is to persuade FiatChrysler Automobiles, Ford Motor and General Motors to pledge to produce new vehicle models in Canada. It will also seek a modest pay raise and shorter pay progression for new hires.

A four-year contract covering some 20,000 Canadian workers at the three companies expires Sept. 19.

"All of those other issues, combined, overwhelm the effect of Unifor," said Tony Faria, a University of Windsor professor who studies the industry, referring to labor costs.

Unifor estimates that, on average, labor represents about 4 percent of the cost of each vehicle its workers produce, versus 55 percent for parts and supplies.

Approximately 50 percent of the parts in Canadian-made vehicles are produced in the country, said Flavio Volpe, Automotive Parts Manufacturers Association of Canada president.

Many Canadian-based parts suppliers did not survive the 2008 financial crisis and resulting recession, he said.

High electricity rates in the province of Ontario are another thorn.

The Canadian Automotive Partnership Council, an industry group that advises government, cites a 2013 survey from Hydro Quebec that shows large power users in Toronto pay 123 percent more than Chicago customers, 50 percent more than Nashville and 37 percent more than Detroit.

Canada's market size poses another problem. About 10 percent of all vehicles sold in North America are purchased in Canada, versus 80 percent in the United States, said Faria.

New government programs, such as Ontario's cap-and-trade climate plan, and higher federal pension contribution could add further costs to automakers' operations.

GM, Ford and Fiat Chrysler declined to comment.

Unifor says any challenges are outweighed by Canada's currency advantage, with the Canadian dollar worth just 77 U.S. cents.

"The companies are making money hand-over-fist, including in their Canadian operations, where they're dealing with hydro costs, they're dealing with our social programs," said Unifor President Jerry Dias.

The union and industry are pushing the Canadian government to change how it funds incentives for automotive production to grants from loans.

"We have to make sure our incentives are competitive to attract interest," said Ray Tanguay, appointed auto industry czar last year to advise Ontario and Canadian governments. "If manufacturing of automobiles is important, then we have to commit and play to win."

Canada should focus on developing skilled labor and advanced manufacturing to distinguish itself, rather than costs, he said.

In 2012, the union came up empty-handed in a push for new vehicle production. Their contract froze wages for existing workers for three out of four years and cut pay and pension benefits for new employees.